This year, I've shifted focus to balancing my portfolio holdings across all 10 sectors in my watch list. My purchases in the first quarter have improved DivGro's diversification and, except for the Materials sector, I now have at least 2 holdings in each sector. I'll continue to bias purchases with the goal to improve DivGro's diversification, but only if I can identify candidates with good dividend yields and strong dividend growth rates trading at a discount to fair value.
In January's edition of this series, I outlined a new approach to identifying candidates. Starting with Dave Fish's CCC list, a spreadsheet providing financial data of companies with 5 or more consecutive years of dividend increases, I apply a series of filters to reduce the number of candidates to 30 stocks. I score these stocks based on my selection criteria and assign a star rating to each stock out of a maximum of 7 stars. I then compile a dashboard sorted by star rating.
The following stocks are the sector winners for April:
| NEW Sturm Ruger & Company Inc. (RGR) • rank 1 | (*******) | Consumer Discretionary |
| NEW Western Union Company (WU) • rank 2 | (*******) | Financials |
| Copa Holdings SA (CPA) • rank 3 | (*******) | Industrials |
| BHP Billiton Ltd. (BHP) • rank 4 | (*******) | Materials |
| SeaDrill Limited (SDRL) • rank 5 | (*******) | Energy |
| NEW Philip Morris International (PM) • rank 7 | (*******) | Consumer Staples |
| NEW Daktronics Inc. (DAKT) • rank 10 | (*******) | Information Technology |
| NEW Avista Corp. (AVA) • rank 13 | (*******) | Utilities |
| Owens & Minor Inc. (OMI) • rank 14 | (*******) | Health Care |
| NEW BCE Inc. (BCE) • rank 18 | (*******) | Telecommunication Services |
Compared with the March list, there are 6 newcomers. RGR replaced WMT at the top of the list and another newcomer, WU, takes the second spot after I purchased last month's rank 2 stock, MDP.
Please note that these stocks are candidates for further analysis, not recommendations.
• Sturm Ruger & Company Inc. (RGR) | growth 5 yrs | yield 3.55% @ $63.33 | 3-yr CAGR 85.83%
Incorporated in 1969, RGR is engaged in the design, manufacture, and sale of firearms and precision metal investment casings. The stock trades at about my fair value estimate of $63.74. With a yield of 3.55% and an impressive dividend growth rate, RGR appears to be an attractive stock for investors seeking both income and growth.
• Western Union Company (WU) | growth 5 yrs | yield 3.06% @ $16.38 | 5-yr CAGR 65.72%
A leader in global money transfer, WU was formed as a result of a spin-off from First Data Corporation in 2006. My fair value estimate is $19.50, which means WU is trading at a discount of about 19%. Like RGR, WU offers a solid yield and an impressive dividend growth rate.
• Copa Holdings SA (CPA) | growth 5 yrs | yield 2.64% @ $146.46 | 5-yr CAGR 58.57%
Incorporated in 1998, CPA is a Latin American provider of airline passenger and cargo service. Since last month, CPA's stock price as recovered well, so the stock now trades at a discount of only 9% to my fair value estimate of $160.
• BHP Billiton Ltd. (BHP) | growth 11 yrs | yield 3.48% @ $69.90 | 5-yr CAGR 10.63%
BHP is one of the world's largest diversified natural resources companies. It is involved in mineral exploration, production and processing; oil and gas exploration and development; and steel production and merchandising. BHP trades at a discount of 7% to my fair value estimate is $74.80.
• SeaDrill Limited (SDRL) | growth 5 yrs | yield 11.15% @ $35.30 | 5-yr CAGR 19.88%
SDRL is an offshore drilling contractor providing worldwide offshore drilling services to the oil and gas industry. The company has an objective to generate competitive returns to shareholders. It offers an impressive yield and dividend growth rate. My fair value estimate is $35.35, so SDRL trades at about fair value.
• Philip Morris International (PM) | growth 6 yrs | yield 4.59% @ $82.81 | 5-yr CAGR 28.40%
PM is a holding company engaged in the manufacture and sale of tobacco products outside the US. It trades at a discount of 6% to my fair value estimate of $87.50. Since its spin off from Altria Group Inc. (MO) in 2008, PM has returned more than $59 billion to its shareholders through share repurchases and dividends.
• Daktronics Inc. (DAKT) | growth 9 yrs | yield 2.50% @ $13.79 | 5-yr CAGR 27.23%
DAKT is one of the the world's largests suppliers of electronic scoreboards, computer-programmable displays, and large screen video displays and controls systems. My fair value estimate is $13.30, so DAKT trades at a slight premium. DAKT has a great dividend growth rate, but the dividend yield it offers is modest at 2.50%.
• Avista Corp. (AVA) | growth 12 yrs | yield 4.14% @ $30.60 | 5-yr CAGR 12.07%
AVA is a diversified energy company engaged in the generation, transmission and distribution of energy in North America. My fair value estimate for AVA is $31.41, just a few percent above the current trading price. Sporting a great dividend yield and a solid dividend growth rate, AVA looks quite attractive.
• Owens & Minor Inc. (OMI) | growth 17 yrs | yield 2.85% @ $35.10 | 5-yr CAGR 12.48%
OMI is a Fortune 500 company providing third-party logistics services to manufacturers and suppliers of healthcare and life-science products. It currently trades at a premium of about 11% to my fair value estimate of $31.20. It has the longest history of dividend increases in this month's list.
BCE is Canada's largest communications service provider and serves as the holding company
for Bell Canada. The company provides wireless, data communications, telephone, high-speed Internet, direct-to-home satellite television and voice over IP services. My fair value estimate for BCE is $44.00, which means BCE trades at a slight discount.
I have enough cash for two non-MLP buys, or a single MLP buy. Although BHP is the top Materials sector stock, I already own the related BBL. I don't think it would be wise to buy BHP. Instead, I might take a look at Syngenta AG (SYT), the runner-up in the Materials sector.
Full Disclosure: Long BBL, MDP
Before the MO/PM split there was a good dividend history and I see that you have not included this information. It's worth considering, in my opinion.
ReplyDeleteThanks for stopping by, Wallet Engineers!
DeleteI agree its worth considering, though not all companies that split continue with the same dividend payment policy/program. In the case of PM, they clearly have some aggressive dividend payment and share buyback program of their own, hence my note to that effect.
For DivGro, I've decided to go exclusively by data made available in Dave Fish's CCC list. That's why I'm showing PM as a 6 year dividend growth stock (and why, for example, neither ABT nor ABBV appear in my watch list).
Cheers!
I only own two companies on your list, PM and OMI. It's hard to own every good company! Thanks for the list, there's a few on here I'll have to look at more. BCE has a nice starting yield for sure.
ReplyDeleteI, of course, own none of these companies. PM looks good here. OMI is too pricey, now. I also like BCE's numbers, but I would prefer to get in at a 5-10% discount.
DeleteI find it interesting that my new approach is finding so many "younger" dividend growth stocks, despite favoring 10+ year and 25+ year payers in my scoring system.
Thanks for commenting!
I own PM but I'd really like to own OMI in the future. Thanks for the update. It gave me some new names to look into since I wouldn't mind adding a few smaller, possibly higher risk/reward, companies that could juice up the DG.
ReplyDeleteI'm interested in OMI, too, but only if I can get it for a 5-10% discount.
DeleteGlad to provide some new names to look at! I'd be interested to hear if any of these smaller names prove to be good opportunities once you've done an analysis.
I wanted to buy something in the Materials sector, next, but I'm not interested in BHP. I'll look into SYT, or venture into other sectors before revisiting Materials.
Thanks for stopping by!
Dave Fish's list is a great place to start any selection process. In fact I believe it is where I too found AVA also and ended up purchasing some shares. It's the only one you mentioned that I own but there's some good names there.
ReplyDeleteYup, Dave Fish's list is a very valuable resource! AVA's dividend yield and 5-yr CAGR both look great. I haven't had a chance to analyze these stocks in more detail in order to choose my next buy, but AVA looks attractive.
Delete